《Intro to Int Trade》.ppt

Multimedia Lecture Support Package to Accompany Basic Marketing Lecture Script 6-* Given these problems, many firms opt for a wholly owned subsidiary where the firm owns 100 percent of the equity. As you might recall from our discussion in Chapter 7, firms can establish a wholly owned subsidiary either by setting up an entirely new operation, or by merging with or acquiring an existing firm. Multimedia Lecture Support Package to Accompany Basic Marketing Lecture Script 6-* What are the advantages of setting up a wholly owned subsidiary? There are several. A wholly owned subsidiary reduces the risk of losing control over core competencies, it gives the firms the tight control over operations in different countries that’s necessary for a global strategic coordination approach where profits from one market are used to support competitive attacks in other markets. A wholly owned subsidiary might also be important to firms that are trying to realize location and experience curve economies. This might be particularly important for firms following global or transnational strategies. A big downside of a wholly owned subsidiary though, is that the firm bears the full costs and risks of setting up foreign operations. Multimedia Lecture Support Package to Accompany Basic Marketing Lecture Script 6-* If a firm decides to go it alone, or operate through a wholly owned subsidiary, the firm has to decide which makes more sense, a greenfield investment or an acquisition? Remember, that in the last decade or so, we’ve seen a significant increase in the number of mergers and acquisitions. Multimedia Lecture Support Package to Accompany Basic Marketing Lecture Script 6-* Why are so many firms choosing acquisitions? Well, they offer three main benefits. They’re quicker to execute than greenfield investments, they enable firms to preempt their competitors, and they’re less risky than starting from scratch. Kraft Foods for example, acquired Cadbury in 2010 with a goal of u